HEISHA, Libya (AP) — Libyan rebels say they're closing in on Moammar Gadhafi and issued an ultimatum Tuesday to regime loyalists in the fugitive dictator's hometown of Sirte, his main remaining bastion: surrender this weekend or face an attack.

"We have a good idea where he is," a top rebel leader said.

The rebels, tightening their grip on Libya after a military blitz, also demanded that Algeria return Gadhafi's wife and three of his children who fled there Monday. Granting asylum to his family, including daughter Aisha who gave birth in Algeria on Tuesday, was an "enemy act," said Ahmed al-Darrad, the rebels' interior minister.

Rebel leaders insisted they are slowly restoring order in the war-scarred capital of Tripoli after a week of fighting, including deploying police and collecting garbage. Reporters touring Tripoli still saw chaotic scenes, including desperate motorists stealing fuel from a gas station.

In the capital's Souk al Jumma neighborhood, about 200 people pounded on the doors of a bank, demanding that it open. Civil servants said they were told they would receive a 250-dinar (about $200) advance on their salaries for the three-day Muslim holiday of Eid al-Fitr, which starts Wednesday in Libya.

Rebel fighters were converging on the heavily militarized town of Sirte, some 250 miles (400 kilometers) east of Tripoli.

The rebels gave pro-Gadhafi forces there a deadline of Saturday — the day after the end of the Muslim holiday — to complete negotiations and surrender. After that, the rebels will "act decisively and militarily," said Mustafa Abdul-Jalil, the head of the rebels' National Transitional Council.

His deputy, Ali Tarhouni, said in Tripoli that "sometimes to avoid bloodshed you must shed blood, and the faster we do this, the less blood we will shed."

In an overnight phone call to AP headquarters in New York, Gadhafi's chief spokesman, Moussa Ibrahim said the rebels' ultimatium would be rejected.

"No dignified honorable nation would accept an ultimatum from armed gangs," he said. Ibrahim reiterated Gadhafi's offer to send his son al-Saadi to negotiate with rebels and form a transitional government.

The spokesman also claimed that a Tuesday afternoon missile attack on the regime stronghold of Sirte had killed 1,000 people and left scores more injured during public prayers marking Eid. He said 12 missiles were fired, possibly from airplanes seen circling overhead.

The spokesman said he got the information on a satellite phone call with doctors and security personnel in Sirte.

The alleged attack could not be immediately confirmed. The regime has consistently exaggerated casaulty tolls.

There has been speculation that Gadhafi is seeking refuge in Sirte or one of the other remaining regime strongholds, among them the towns of Bani Walid or Sabha.

"Gadhafi is now fleeing — and we have a good idea where he is," Tarhouni said, without elaborating. "We don't have any doubt that we will catch him."

Ibrahim said he thinks that NATO believes Gadhafi is in Sirte "because much of his family and tribe is there."

"Maybe they have been advised by some of the leaders of the rebels to attack the city with such vigor and power in hope that the leader is there praying with his people," he told AP.

Ibrahim would not disclose Gadhafi's whereabouts except to say that he is "in Libya of course" and not planning to leave the country. Ibrahim said he himself was "somewhere south of Tripoli."

Some 90 miles (150 kilometers) west of Sirte, about a dozen armored, gun-mounted trucks were parked at a staging ground in the desert. A highway overpass provided some shade for rebels, most dressed in T-shirts and camouflage pants.

Commander Ismail Shallouf said patrols have gone 30 miles (50 kilometers) closer to Sirte, and occasionally have exchanged fire with Gadhafi fighters. Ahmed Abu Sweira, standing on the overpass, said rebels are waiting for reinforcements for the final push.

On Monday, NATO hit about three dozen Gadhafi military targets in the Sirte area. NATO insists it remains within the bounds of its original mission of protecting Libyan civilians, but appears to be paving the way for advancing rebel forces with its targeted airstrikes.

Diplomatic tensions rose between the rebels and Algeria after the Algerian government agreed to grant refuge to Gadhafi's wife, Safiya, daughter Aisha and sons Hannibal and Mohammed.

In a dramatic episode, Aisha, a lawyer in her mid-30s, gave birth to her fourth child — a girl — as the family escaped to Algeria.

An Algerian newspaper reported that the exiles, who also included an unknown number of Gadhafi's grandchildren, had waited 12 hours to receive authorization from President Abdelaziz Bouteflika while Aisha was in labor.

Algerian U.N. Ambassador Mourad Benmehidi said in a letter to the Security Council obtained by The Associated Press that the child was born Monday "at the border without medical assistance." The Algerian Health Ministry said the child was born Tuesday.

Algerian news reports said Aisha's pregnancy was one reason for Algeria's controversial decision to take the fleeing family in. Benmehidi said Algeria allowed Gadhafi's family to enter for "humanitarian considerations."

The whole party is now wanted by Libya's new rulers. The interim government criticized Algeria's decision and demanded that Gadhafi's relatives be handed over for trial in Libya.

The fate of Gadhafi's son Khamis continues to be in doubt. On Monday, rebel fighters said they believed Khamis, commander of an elite military unit, was killed in a rebel ambush south of Tripoli last week. However, Tarhouni said Tuesday that he cannot confirm Khamis' death.

In all, Gadhafi has eight biological children, a daughter and seven sons.

Since the rebel takeover of Tripoli more than a week ago, evidence has been mounting that Gadhafi may have lied about the death of his adopted baby daughter Hana in a 1986 U.S. airstrike.

The strike hit Gadhafi's home in his Tripoli compound, Bab al-Aziziya, in retaliation for the Libyan-sponsored bombing of a Berlin nightclub earlier that year that killed two U.S. servicemen. At the time, Gadhafi showed American journalists a picture of a dead baby and said it was his adopted daughter Hana — the first public mention that she even existed.

Diplomats almost immediately questioned the claim. But Gadhafi kept the story alive through the years.

Adel Shaltut, a Libyan diplomat at the U.N. in Geneva, said it was common knowledge that Hana Gadhafi wasn't killed. "All Libyans knew from the very beginning that it's a lie," he told AP, saying Hana was married and had children.

As the last vestiges of Gadhafi's regime disappear, the rebels are trying to set up a new government in Tripoli. A new Cabinet has begun meeting, although not all members are present. Leaders of the interim government, Abdul-Jalil and Mahmoud Jibril, are holding meetings abroad and have not yet arrived in the capital.

The new government also is struggling with a water shortage in the city of nearly 2 million people. They have been without running water for a week since Gadhafi loyalists attacked crews trying to restart pumping stations for aquifers deep in the desert, rebel official Aref Ali Nayeb told AP. Bottles of drinking water are reaching most of the residents in aid shipments via Tripoli's port, distributed through neighborhood councils and mosques.

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Associated Press writers Hadeel al-Shalchi and Ben Hubbard in Tripoli, Frank Jordans in Geneva, Switzerland; Jonathan M. Katz in New York and Edith M. Lederer at the United Nations contributed to this report.